Detroit Emergency Manager "Freezes" Pension Fund

So far, city employees of bankrupt Detroit have stoically withstood all direct and indirect eliminations of their entitlements and retirement benefits, which was to be expected: after all as per a recent finding, they are merely an unsecured claim in an insolvent entity. However, following the latest shot across the bow from Detroit's emergency manager Kevyn Orr, which freezes pension plans for all non-uniform employees, said stoicism will likely be acutely tested.

Emergency Manager Kevyn Orr has frozen the city’s pension plans for all non-uniform employees, closing the General Retirement System effective Jan. 1.

Orr’s Dec. 30 action freezes earned pension benefits for employees in the General Retirement System and creates a new 401(k)-style defined contribution retirement plan for existing and future city workers, according to a copy of the emergency manager’s order obtained by The Detroit News.

As part of the order, Orr also eliminated the pension “escalator,” effectively eliminating any future cost-of-living increases for all retired city employees in the General Retirement System.

The emergency manager’s order also closes the pension system’s Annuity Savings Fund, an added benefit for some municipal workers.

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City employees who were not already vested in the retirement system “shall not be entitled” to pension benefits, according to the order.

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Tina Bassett, a spokeswoman for the General Retirement System, called Orr’s pension freeze “an outrageous and over-zealous action.”

“Again the EM’s office demonstrates a lack of integrity and willingness to make a good faith effort when negotiating with our pension system,” Bassett said in a statement. “Currently we are in the midst of mediations that we thought were going rather well. We can only wonder, why take this action now and for what purpose?”